WTI Oil Retreats From Six-Week High as U.S. Crude Supplies Surge

April 16 (Bloomberg) -- West Texas Intermediate crude retreated from a six-week high after a government report showed that U.S. supplies rose more than 10 million barrels last week. Brent climbed on the escalating Ukraine crisis.

Inventories grew more than five times as much as forecast in the Energy Information Administration report. Supplies along the Gulf of Mexico, known as PADD 3, rose 5.17 million barrels to 207.2 million, the most in EIA data going back to 1990. Stockpiles at Cushing, Oklahoma, the delivery point for WTI, fell. Ukraine began an offensive against separatists in its east amid claims that Russian special forces were fomenting unrest.

“The 10 million-barrel build is huge and should be reason to re-evaluate the supply situation,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There’s an awful lot of oil on the Gulf Coast.”

WTI for May delivery slipped 5 cents to $103.70 a barrel at 2:10 p.m. on the New York Mercantile Exchange. Futures increased to $104.99 earlier, the highest level since March 3, then traded as low as $103.12. The volume of all futures traded was 65 percent above the 100-day average.

Brent for June settlement rose 35 cents to $109.71 a barrel on the London-based ICE Futures Europe exchange. Earlier, prices rallied above $110 for the first time since March 4. Volume was 12 percent above the 100-day average.

WTI’s discount to Brent for the same month widened to $6.68 a barrel.

Supply Gain

U.S. crude stockpiles jumped to 394.1 million, the highest level since June, according to the EIA. They were projected to grow 1.75 million, the median of 10 analyst responses in a Bloomberg survey.

Stockpiles of crude at Cushing fell 771,000 barrels in the week ended April 11 to 26.8 million, the lowest level since October 2009. Inventories at Cushing have fallen since the southern portion of the Keystone XL pipeline began moving oil to the Texas Gulf Coast from the hub in January.

Crude supplies on the U.S. West Coast, an area classified by the department as PADD 5, rose 3.96 million barrels to 55.8 million, the report showed. Changes in PADD 5 are sometimes ignored by traders because the region’s distribution system is isolated from the rest of the country.

“It was a sizable build, but 40 percent of the build occurred in PADD 5,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “I do think WTI does appear toppy. I’m bullish, but wary.”

Surging Output

U.S. crude production increased 72,000 barrels a day to 8.3 million, the most since April 1988, the EIA said. Output has surged this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies trapped in shale formations.

Refineries operated at 88.8 percent of capacity, up 1.3 percentage points from the prior week and the highest level since Jan. 10, the EIA said. The Gulf Coast is home to 46 percent of U.S. refining capacity.

“The glut in supply has moved from Cushing to PADD 3,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “It’s always a surprise to see PADD 3 supplies gain when utilization is up.”

Supplies of distillate fuel, a category that includes heating oil and diesel, fell 1.28 million barrels to 111.9 million last week. Gasoline stockpiles dropped 154,000 barrels to 210.3 million.

Ukraine Offensive

Ukraine’s offensive yesterday marked its first foray against armed activists holding government buildings in cities near the Russian border. Interior Ministry units ousted pro- Russian activists who had seized the airfield in Kramatorsk. Efforts to contain the insurgency risk escalating tensions with the government in Moscow, which warned of a potential civil war.

Russia has 40,000 troops massed on Ukraine’s border after its annexation of Crimea last month, the North Atlantic Treaty Organization said. NATO pledged to hold more military drills in eastern Europe and step up air and naval policing on its flanks.

“The risk in Ukraine is keeping oil up,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “People are getting nervous. If it went away, we could see oil drop $10.”

Implied volatility for at-the-money WTI options expiring in June was 17.5 percent, up from 17.4 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 606,420 contracts at 2:10 p.m. It totaled 517,573 contracts yesterday, 3.9 percent below the three-month average. Open interest was 1.67 million contracts.